Average Daily Range (ADR) Indicator
The Average Daily Range (ADR) indicator shows the average range of a currency pair in pips over a 14 day period.
Description
Forex market volatility can provide valuable insight into the day’s activity. Traders enter into trades when volatility is high. Thus, low volatility is a sign that the market is calm and volatile.
Forex traders use the average daily range (ADR) to calculate the trading range for the day. However, calculating this can take a long time because quick decisions need to be made. The average daily range indicator helps traders calculate the daily range of the day, thereby saving time.
Fund
The Average Daily Range (ADR) indicator shows the average range of a currency pair in pips over a 14 day period. By showing the trading range of the day, forex traders become aware of market volatility.
The average range of the day is displayed by this indicator in the upper left corner of the chart, as shown in the chart below.
When the ADR value is above the average range, it indicates that the volatility of the day is higher. Thus, there is a surge in the movement of a currency pair when today’s ADR value is higher than the value over the past 14 days.
This indicator can be used to find daily support and resistance zones. Additionally, this indicator can be used to generate signals for short-term traders. Additionally, traders can use the value of ADR pips for the take profit level.
This indicator is also useful for day traders. These traders look for breakout and reversal opportunities when the price reaches the top of the daily range.
How to calculate the average daily range value
This indicator calculates the ADR value by taking the distance between the high and low of the last 14-day period, summing them and finally dividing the result by 14.
For example, if the daily range of a currency pair for the last 14 days is 55,76,34,42,66,89,65,45,22,101,78,33,67 and 90, the ADR value will be (55+76+34+42 +66+89+65+45+22+101+78+33+67+90)/14 =61.6 points
Thus, the ADR value is approximately 62 points.
How to trade using the daily average range indicator
This indicator can be used for range and breakout trading. A breakout trade can be placed when the current ADR value is higher than the last 14 days and the high or low candle of the day is broken. Traders should place buy or sell trades in the direction of the breakout.
Moreover, a reversal trade can be placed when the price reaches the high or low of the day and bounces back. Take profit and stop loss should be placed according to price action analysis.
Conclusion
The Average Daily Range Indicator for MT5 is a valuable tool used to determine the state of the market. This indicator displays the 14-day daily range and the current ADR value.
When the current value of ADR is higher than the value over the last 14 days, market volatility is high. However, when the current ADR value is lower than the previous 14-day value, market volatility is low.
This indicator can be used to know when to enter a trade and also when to exit the market.